YMCA College of Continuing Education
Diploma (Advanced Level) in Accounting Studies
Auditing and Professional Ethics I
Assignment No. 3
The following multiple choice questions are extracted from the topics about the audit evidence and
audit testing. You are required to select the best answer.
1)
Which is the following would be least likely to be included in an auditor’s test of controls?
A)
C)
2)
B)
D)
Confirmation
Disclosure
To comply with the accounting standards
To detect errors or irregularities
To verify the accuracy of the account balance
To gather corroborative evidence
Are designed to discover significant subsequent events
May be eliminated under certain conditions
Will decrease proportionately with the auditor’s assessed level of control risk
May be either tests of transactions, direct
Which of the following is not a financial report assertion?
A)
C)
6)
Physical examination
Vouching
In a financial report audit, substantive tests are audit procedures that
A)
B)
C)
D)
5)
Inspection
Inquiry
Which of the following best describes the primary purpose of audit procedures?
A)
B)
C)
D)
4)
B)
D)
Which of the following is not an auditing procedure?
A)
C)
3)
Observation
Confirmation
Inspection
Valuation
B)
D)
Existence
Rights and obligations
Which of the following audit objectives relates primarily to the financial report assertion, valuation?
A)
B)
C)
D)
Inventory listings are accurately complied and the totals are properly included in inventory
accounts
Inventories exclude items billed to customers or owned by others
Slow-moving, excess, defective and obsolete items included in inventories are properly
identified
Inventory quantities include all products, materials and supplies owned by the company that are
in result
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7)
Which of the following audit objectives relates primarily to the financial report assertion,
completeness?
A)
B)
C)
D)
8)
Which of the following statements concerning evidence is correct?
A)
B)
C)
D)
9)
The reliability of the evidence in meeting the audit procedures
The objectivity of the auditor gathering the evidence
The quantity of the evidence obtained
The sampling method used by the auditor
Which of the following procedures would provide the most reliable audit evidence?
E)
F)
G)
H)
13)
Reliable and well documented
Extensive and timely
Useful and independent
Reliable and relevant
Which of the following is most important in determining the appropriateness of audit evidence?
A)
B)
C)
D)
12)
Supplies’ invoices
Computations made by the auditor
Pre-numbered client invoices
Bank statements obtained from the client
To be appropriate, evidence must be both:
A)
B)
C)
D)
11)
Appropriate evidence supporting management’s assertions must be convincing rather than
merely persuasive
An effective internal control structure contributes little to the reliability of the evidence created
within the entity
The cost of obtaining evidence is not an important consideration to an auditor in deciding what
evidence should be obtained
A client’s accounting data cannot be considered sufficient audit evidence to support the financial
report
Which of the following is the least persuasive type of evidence?
A)
B)
C)
D)
10)
Inventories are reduced, when appropriate, to net realizable value
Inventories exclude items billed to customers or owned by others
Slow-moving, excess, defective and obsolete items included in inventories are properly
identified
Inventory quantities include all products, materials and supplies owned by the company that are
in result
Inquires of the entity’s internal audit staff held in private
Inspection of bank statements obtained directly by the auditor from the entity’s financial
institution
Analytical procedures performed by the auditor on the entity’s trial balance
Inspection of prenumbered client purchase orders filed in the accounts payable department
Which assertions are relevant for substantive tests of transactions?
A)
B)
C)
D)
Existence and measurement
Occurrence and valuation
Existence and valuation
Occurrence and measurement
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14)
Test of controls must be performed
A)
B)
C)
D)
15)
When control risk is evaluated at less than high, test of control should be undertaken of
A)
B)
C)
D)
16)
Test of controls focus on transactions with high dollar value.
Test of controls allow the auditor to increase the level of acceptable detection risk.
Test of controls allow the auditor to reduce the level of inherent risk.
Test of controls should be used in areas where inherent risk is evaluated as high.
The primary purpose of the auditor’s consideration of the internal control structure is to provide a basis
for
A)
B)
C)
D)
21)
Test if the specific items making up the balance in a given general ledger account
Tests of inventory pricing to vendor’s invoices
Test of the signatures on purchases documents to appropriate authorizations
Tests of additions to property, plant and equipment by physical inspections
Which is the correct statement about the test of controls?
A)
B)
C)
D)
20)
Should not be used in areas where inherent risk us evaluated as high
Allow the auditor to reduce the level of inherent risk
Allow the auditor to increase the level of acceptable detection risk
Should focus on transactions with high dollar value
Which of the following audit tests would be regarded as a test of controls?
A)
B)
C)
D)
19)
Provide evidence on both the design and operation of the internal control structure
Provide assurance for both tests of controls and substantive test of balances
Provide assurance for both tests of control and substantive tests of transactions
Provide assurance for both tests of controls and substantive tests of transactions and balances
Test of controls
A)
B)
C)
D)
18)
Design of the internal control structure
Existence, effectiveness and continuity of controls
Both design and operation of the internal control structure
Operation of the internal control structure
Dual-purpose tests are tests that
A)
B)
C)
D)
17)
When control risk is high
In areas of strategic business risk
When inherent risk is high
To ensure that the control exists and is operating effectively throughout the entire year
Constructive suggestions to clients concerning improvements in the internal control structure
The expression of an opinion on the internal control structure
Determining whether procedures and records that are concerned with the safeguarding of assets
are reliable
Determining the nature, extent and timing of audit tests to be applied
A procedure that would most likely be used by an auditor in performing tests of control procedures that
involve segregation of functions and that leave no transaction trail is:
A)
C)
Reconciliation
Observation
B)
D)
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Reperformance
Inspection
22)
Analytical procedures may be classified as being primarily
A)
C)
23)
C)
D)
C)
D)
Decrease in the inventory turnover rate
Decrease in the ratio of gross profit to sales
Decrease in the ratio of inventory to accounts payable
Decrease in the ratio of inventory to account receivable
Unrecorded sales
Merchandise purchases charged to selling expense
B)
D)
Unrecorded purchases
Fictitious sales
Significant unexpected difference identified by analytical procedures will usually necessitate
A)
B)
C)
D)
29)
recorded amounts of major disbursements with appropriate invoices
financial information with similar information regarding the industry in which the entity
operates
computer-generated data with similar data generated by a manual accounting system
results of a statistical sample with the expected characteristics of the actual population
Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease
in the ratio of gross profit to sales may suggest which of the following possibilities?
A)
C)
28)
Study of relationships between financial information and relevant non-financial information
Comparison of financial information with similar information regarding the industry in which
the entity operates
Comparison of recorded amounts of major disbursements with appropriate invoices
Comparison of recorded amounts disbursement with budgeted amounts
Which result of an analytical procedure suggests the existence of obsolete inventory?
A)
B)
C)
D)
27)
the predictability of financial data from individual transactions
material weakness in the internal control structure
areas that may represent specific risk relevant to the audit
the various assertions that are embodied in the financial report
An example of an analytical procedure is the comparison of
A)
B)
26)
substantive tests
detailed tests of balances
Which of the following is not typical analytical procedure?
A)
B)
25)
B)
D)
Analytical procedures used in planning an audit should focus on identifying
A)
B)
C)
D)
24)
test of control
test of ratios
a review of the internal control structure
addition of an emphasis of matter paragraph to the audit report
investigation by the auditor
an explanation in the representation letter
Which of the following in not a component of the internal control structure?
A)
C)
Organizational structure
Control environment
B)
D)
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Control activities
Risk assessment
30)
After obtaining an understanding of the internal control structure in an audit engagement, the auditor
should perform tests of controls on
A)
B)
C)
D)
those procedures for which reportable conditions were identified
those procedures that the auditor identified to reduce the assessed level of control risk
those procedures that have a material effect upon the financial report balances
a random sample of the procedures that were identified
**** End Of Assignment ****
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